Financial institutions are a staple of every community. They come in all sizes, from privately owned local entities to international corporations. Many of these banking companies are for profit and must make money to survive in a highly competitive market.

A recent trend shows banks building an assortment of fees and charges into your checking account to boost their cash flows at your expense. Worse yet, they also have control over when withdrawals and deposits hit your account for a given day.

Control Over When Withdrawals Hit Your Account For A Given Day

Common sense would have your bank credit deposits before any withdrawals, purchases, or checks for that same date. Unfortunately, this is not always the case. Holding of deposits has been common banking practice for decades.

When you deposit a check into your account, often a small portion of that check goes into your account right away.The remainder is delayed from being added to your balance for a timeframe of 1-5 business days. Banks cite reasoning for use of such deposit holds to protect their assets against fraud or bounced checks.

Knowing when withdrawals leave your account is even more important than recognizing when your deposits are available. Some banking corporations assume that your payments and purchases should post from highest amount to lowest.

At first glance, this makes sense because a check for your mortgage, rent, or car payment usually takes highest priority in time sensitivity and amount. This is the answer a teller or service representative would probably give you if you were to question them about it.

There’s another reason your bank is less likely to disclose in regards to why they favor this order. Let’s say you have $1,500 in your account. You deposited your paycheck for $1,200 yesterday afternoon, which is held from posting for two more days. Five withdrawals are subtracted from your account today.

The first is a $1,200 check for your mortgage. This is followed by your $290 car payment, leaving you with $10 in the account. A $20 purchase you made yesterday at the gas pump posts next. Finally, two $5 trips to your favorite coffee shop from earlier in the week are deducted. At the end of the day, you’ve overdrawn your account by $20.

Overdrafts And Their Associated Fees

Overdrafts and their associated fees are among the biggest cash cows for bankers. Common knowledge would suggest any checks or withdrawals that exceed the amount in your account would bounce. The truth is that your bank will usually clear these purchases, but with an attached fee in the range of $25-$40 for each.

Referencing the example above, there is a balance of -$20 in your checking account. The $20 purchase for gas initially put you in the hole, while your two $5 coffee breaks were also paid despite a sub-zero balance. Three overdraft fees for each of these payments will plunge your account even further into the red.

If your mortgage and car payment had posted last instead of first, here’s how the different the scenario would’ve played out. The pair of $5 purchases for your morning coffee would exit your account first. They’d be followed by the $20 you used to top off your gas tank. Your account balance would be at $1,470, more than enough to cover your $290 car payment as it would post next.

At the end of the day your mortgage check would clear, pushing your account below zero by $20. The difference here is that only your mortgage payment sent your balance into the basement. This means you’d be hit with just one overdraft charge instead of three.

Financial institutions are banking on sustained negative balances to make them money. First are the charges for each purchase made while an account is overdrawn. There are also supplemental penalties levied if your account remains below $0 for a specified amount of time. With your negative balance of $20 and three $25 overdraft fees, you now technically owe your bank ninety-five dollars.

Overdraft Charges

The fact that some retail banks make little effort to inform you about overdraft situations is even more unsettling. In the example account above, remember that your paycheck is still held up for two more business days. Any other purchases made during those days will come at a price of $25 apiece. Once your paycheck has cleared, it’s likely that overdraft fees have chewed up a good chunk of the earnings you’ve worked so hard for.

Overdraft charges are just one way that banks use your money for their gain. If you have multiple accounts with one company, it’s likely that you regularly transfer funds between them. Pay close attention, as your bank may limit the number of money moves you’re allowed per month. This means every additional transfer could come with a $2-10 cost.

Anyone who’s deposited money in an account has probably received a statement in the mail. Ever look on the bottom of this account history and see a $2-5 charge labeled, “paper statement fee?” Retail depositories are making you pay for their postage expenses in an effort to save costs, encourage use of online banking, and capture more profits from consumers.

On the back of your debit card, there’s a 1-800 number you can call for account assistance. Be careful, because the title “toll free” that applies to your institution’s customer service line may have hidden costs. Like with transfers, some banking corporations restrict how many times you can phone in to check your balance. For each call over this cap, $1-5 is withdrawn from your account.

Conclusion

Keeping an accurate and up to date account ledger is the best defense against this arsenal of fees and charges. Save all sales receipts and make it a daily habit to write these in your checkbook. Postings of debit card purchases can delay for up to three business days, especially if you opted to sign for them over using your PIN. These proactive measures will help protect you and your money from profit making practices that your bank may be holding on your account.